Rare books, like other collectibles such as art, fine wine, coins, gemstones and baseball cards, belong in the class of investments called hard assets. These tangible assets are considered by many to provide a safe haven from the stock and bond market and more recently the real estate market downturns (real estate is also considered a hard asset.) The advantage of including hard assets into your investment portfolio is diversification, as its performance is typically less correlated to the price of stocks and bonds. Among the disadvantages is that such assets lack liquidity and may remain unsold for a prolonged period of time. Additional drawbacks include special storage requirements, handling, insurance and security concerns.
During recent years when yields remained low and markets have become more volatile, the traditional investment advice of a mix consisting strictly of stocks and bonds proved inadequate at times. The ground has shifted; the international markets that are now inter-connected are more efficient and also more volatile. Rare books are normally included to supplement an investor’s portfolio only when retirement savings are secure and the investor enjoys collecting them. Below are some general strategies to use when looking to include rare books in your investment portfolio.
Rethink the cost of cash: You will definitely need some cash in order to take advantage of opportunities that may arise. Holding cash is necessary for investing but holding too much cash for a long time is not the way to save or invest. Even during periods of low Inflation, the compounded low rate is significantly affecting your purchasing power.
Seek rare books in different places: Rare book investors should look far and wide. Seek opportunities in different countries, markets or channels. A great deal of research can be conducted from the comfort of your office or home, but you should try to attend local events such as auctions, fairs and book sales to broaden your reach and understanding.
Open your eyes to alternatives: One thing we learned from tracking rare book price performance is that not all genres are the same. The Rare Book Sale Monitor has recorded significant variations between the 13 categories it follows. In addition, there are variations between time periods, languages or nationalities, and related collectibles such as maps, and even ephemeral. Look for alternatives outside your area of interest in order to reduce your risk even further.
Be active about passive: Get involved in rare book events. Attend auctions, book fairs and sales and keep learning about the books you are interested in. Use the internet, libraries, newsletters and experts of sorts to educate yourself. Tap into market opportunities that arise from such events.
Use your longevity: The good news is that lifespans are lasting longer. People are living longer and they can use their longevity to ride out market cycles. An investment portfolio that includes rare books is better positioned to withstand market cycles and provide long-term growth that extends well beyond retirement day. Rare books have historically proven to hold and appreciate in value in the long-run. One precautionary note that every collector should never forget, is that books are fragile and can depreciate in value if damaged or otherwise suffer condition setback. While the lifespan of a book can be infinite in theory, adverse environmental factors will deteriorate its condition prematurely. Be smart about book storage and book handling in general.
As is the case with most investment vehicles, picking a time to sell is usually the most difficult part of the process, especially in the case of rare books where liquidity is a primary concern. There is no doubt that an underpriced scarce book will sell quickly but that may not be the desired approach if return maximization is the ultimate goal. Investors sometimes turn to collectors and find it very hard when it comes time to sell and have to let that special collectible go. Can rare book collecting provide the enjoyment of a pastime hobby as well as the returns of an investment vehicle? After all, it has the capacity to provide sentimental as well as monetary value. Is it possible to be able to enjoy both? There is only one way to find out and it begins by buying books you love.